The Partner “Freeze Out”

Freeze Out Photo for MM Blog 081214The prior post introduced the concept of minority shareholder oppression, which may be grounds for the judicial dissolution (i.e., business divorce) of a privately held corporation.  A similar concept — called a “freeze out” — exists for partnerships.

In particular, a court may dissolve a partnership if a partner has engaged in conduct that makes it “not reasonably practicable to carry on the partnership business.”  805 ILCS 206/801(5).  Courts have used this standard as a basis to dissolve partnerships where one partner improperly blocks another partner from participating in the partnership or, in other words, “freezing out” the partner.

For example, in Susman v. Cypress Venture, the court dissolved five related real estate development partnerships because the petitioning partner established that his other partners improperly told him he was no longer a partner, altered the partnership tax returns to indicate his interest was reduced to zero, excluded him from partnership business, denied him information concerning the activities of the partnership, and refused to account for partnership expenses.  The court concluded that dissolution was warranted because the relations existing between the partners rendered it “impracticable for them to conduct business.”

These examples of misconduct in Susman are similar to those noted in the Gidwitz case concerning shareholder oppression and, thus, demonstrate some similarities in the grounds for dissolution when dealing with privately held corporations and partnerships.

(This is for informational purposes and is not legal advice.)

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